Why did Tesla’s stock price see its largest intra-year drop? Q2 net profit missed expectations, and shorts made tens of billions in profits

In the US stock earnings season of July 2026, the market staged a dramatic tale of ice and fire. After Tesla (TSLA) released a Q2 earnings report that was a mix of good and bad news, its stock price plunged by more than 14%, marking its biggest single-day drop in over a year. However, on the same day, shares tied to crypto mining soared across the board—Cipher Digital and Hut 8 jumped by more than 9%, Riot Platforms rose by more than 6%, and TeraWulf, MARA Holdings, IREN, and CleanSpark rose by more than 4%.

On one side, a tech flagship was hit by an epic sell-off; on the other, crypto-related assets surged against the trend. This is not a coincidence.

Where the “temperature difference” in Tesla’s Q2 report comes from

On July 22, after the US market close, Tesla released FY2026Q2 results. Revenue reached a record high of $28.24 billion, up 26% year over year, with trailing-12-month revenue for the first time surpassing $100 billion. On the revenue line alone, this is a strong set of numbers.

But the profit picture looked completely different. Adjusted earnings per share (EPS) came in at only $0.33, versus the market’s expectation of $0.51—an upside-down gap of 35%. Operating profit was just $398 million, far below the market expectation of $1.39 billion, plunging 57% year over year. Operating margin fell from 4.1% a year earlier to 1.4%.

Revenue up 26%, profit down 57%—this “growing revenue but not growing profits” pattern is the core reason the report triggered panic in the market.

The truth about gross margin and the profit-margin alarm

Total gross margin was 21.1% in Q1 and dropped sharply to 16.8% in Q2—a 4.3 percentage-point decline that initially looks shocking. But a deeper breakdown shows that Q1’s higher base included one-time factors—$230 million in warranty provision reversals and more than $200 million in tariff incentives. Stripping out those factors, Q1’s true gross margin was about 17.5%, while Q2 was 16.8%, leaving a gap of only 0.7 percentage points.

The real alarm is not in gross margin, but in operating margin. Dropping from 4.1% to 1.4%—a decline of 2.7 percentage points—was mainly driven by a 47% surge in operating expenses. AI R&D, ramping up new products, and the depreciation/amortization of compute capacity—each item was the result of management intentionally increasing investment.

Meanwhile, regulatory credit revenue fell from $380 million in Q1 to $146 million. As other automakers push forward with electrification, supply and demand dynamics in the credit market are reversing, and the value of Tesla’s “free profit voucher” is steadily shrinking.

A 467x P/E and the valuation contradiction of an AI gamble

Tesla’s current share price implies a forward-looking P/E ratio of about 152 times over the next 12 months. Among the “Magnificent Seven,” Tesla is the most expensive by valuation, and also the worst performer this year.

Behind the high valuation is high expectation. The market’s pricing of Tesla is no longer just about vehicle sales—it is a bet on its AI and robotics business. But the Q2 report revealed an awkward reality: Q2 capital expenditures reached $5.79B, up 142% year over year, and doubled quarter over quarter; free cash flow turned negative to -$1.09 billion. Tesla’s CFO explicitly said that free cash flow is not expected to turn positive until 2029.

This creates a set of sharp contradictions: the AI story is getting more expensive (capital spending continues to rise), car profits are getting thinner (gross margin declining quarter by quarter), while software revenue such as FSD—despite global paid users reaching 1.48 million and annualized revenue of about $1.76 billion—has not grown enough to cover the investment. A 467x P/E has already priced in success, while in reality the transition period is much longer and more costly than the market expects.

Nearly $800 billion wiped out in a single day by the tech giants

Tesla is not the only case. On July 23 (Thursday), the “Magnificent Seven” suffered their worst single-day sell-off since the April 2025 “tariff storm.” Combined, the seven leading companies saw $797 billion in market value evaporate in a single day, and the Mag 7 index fell 4.8%.

Tesla led the decline, dropping by more than 14% and losing about $214.5 billion in market value in one day. Alphabet closed down 7.1%, with a one-day market value loss of more than $293 billion. Amazon fell by more than 4%, Meta by more than 3%, and Microsoft by more than 2%.

The direct trigger for this sell-off came from two underwhelming earnings reports from Alphabet and Tesla. Although Alphabet’s net profit beat expectations, its quarterly capital expenditures were as high as $45 billion, and its full-year cap was raised to $205 billion, leading to free cash flow turning negative for the first time since listing. When the two pieces of news hit together, they completely shattered the market’s expectation balance between profitability and capital spending for tech giants.

A three-year wave of AI-driven capital spending is now hitting its “interrogation moment”—investors are starting to ask: when will the tens of billions of dollars in investment translate into meaningful returns?

Why crypto miners surged against the trend

On the very same trading day when tech stocks were bleeding, shares tied to crypto miners rose sharply across the board. Cipher Digital and Hut 8 both rose by more than 9%. Riot Platforms rose by more than 6%. This divergence is not simply a “see-saw effect.” Three layers of logic underpin it.

First, structural upside from AI infrastructure demand. Crypto mining companies are shifting from simply mining Bitcoin to operating AI data centers. Hut 8 signed a 15-year lease worth $9.8 billion for an AI data center; IREN secured a $2.8 billion cloud contract. Morgan Stanley listed Hut 8 as a top pick, with a target price of $263, implying an upside of 141% versus its July 21 closing price. When Tesla and other tech giants were hit by sell-offs due to excessive capital spending, miners that had already monetized compute assets gained market recognition instead.

Second, a reshaping of valuation logic. The market is re-pricing crypto miners from “Bitcoin beta” to “compute infrastructure asset” status. Stock performance for miners is increasingly driven by data center demand and chip supply, not by short-term fluctuations in Bitcoin prices. This valuation logic shift makes miners a relatively independent asset category during tech-stock pullbacks.

Third, a rotation effect in capital flows. When the “Magnificent Seven” were sold off due to excessive valuations and concerns about capital spending, some capital sought alternative allocations. Crypto miners combine both “AI compute” and “crypto assets” attributes, making them one of the beneficiary directions as funds rotate out of overvalued tech stocks.

A new linkage paradigm between US equities and crypto markets

Tesla’s plunge and crypto miners’ rally happening simultaneously shows that a new linkage paradigm is forming between US stocks and crypto markets—not through Bitcoin prices, but through a shared underlying logic of “compute assets.”

Traditionally, the linkage between US equities and crypto has mainly passed through macro liquidity (Federal Reserve policy) and risk appetite transmission. But the distinct feature of this round of divergence is that Tesla’s sell-off stemmed from market doubts about the efficiency of its AI capital spending, while the crypto miners’ rise was driven by market recognition of their ability to monetize AI compute assets. The same “AI compute” narrative produced sharply opposite price signals across different asset categories.

Behind it is the market’s re-pricing of the “capital spending–returns” cycle. When Alphabet and Tesla’s massive capital spending triggered investors’ anxiety about the returns timeline, miners that had already turned compute into stable cash flows (such as long-term leases) instead received an “uncertainty premium.” Crypto miners are shifting from “tools of the crypto cycle” to “beneficiaries of AI infrastructure,” and this identity shift is reshaping their linkage structure with the US tech sector.

Summary

Tesla’s Q2 report reveals the most awkward predicament for this EV giant: revenue is at record levels, but profits are cut in half; the AI story is getting more expensive, and car profits are getting thinner; a 467x P/E has already bet on success, while free cash flow won’t turn positive until 2029. The 14.5% plunge triggered by this report not only let shorts make about $4.1 billion in a single day, but also triggered a systemic sell-off where the “Magnificent Seven” collectively wiped out nearly $800 billion in market value in one day.

Meanwhile, crypto miners’ rally against the trend is not accidental. Structural AI infrastructure demand, the reshaping of valuation logic, and capital rotation from high-valued tech stocks into alternative assets together provide the underlying support for the miners’ rise. Tesla’s sell-off and crypto miners’ celebration occurring at the same time signals that the linkage between US equities and crypto markets is evolving from “macro sentiment transmission” to a new paradigm of “re-pricing compute assets”—in this new paradigm, the market’s key yardstick is the monetization capability of compute, not the scale of compute投入.

FAQ

Q1: Which numbers in Tesla’s Q2 report missed expectations the most?

Adjusted EPS was $0.33 versus the market’s expected $0.51, a 35% gap; operating profit was $398 million, well below the expected $1.39 billion; gross margin was 16.8%, below the expected 19.4%; and free cash flow turned negative to -$1.09 billion.

Q2: Why did Tesla’s stock sell-off make shorts profit handsomely?

About 3% of Tesla’s float was shorted, the highest short percentage among the “Magnificent Seven.” On July 23, Tesla’s stock dropped 14.5%, and the shorts’ mark-to-market gains for the day were about $4.12 billion. Through 2026 year-to-date, the stock has fallen by nearly 30%, and shorts’ cumulative mark-to-market gains for the year are about $9.08 billion.

Q3: Why did crypto miners rise when Tesla crashed?

Crypto miners are shifting from Bitcoin mining to operating AI data centers. Hut 8 signed a $9.8 billion AI data center lease and received institutions raising their target prices. The market re-priced it as a “compute infrastructure asset” rather than just a pure Bitcoin beta play.

Q4: How much market value did the “Magnificent Seven” evaporate in one day?

On July 23, the “Magnificent Seven” collectively saw $797 billion in market value evaporate in a single day, with the Mag 7 index falling 4.8%, the biggest one-day decline since the April 2025 “tariff storm.”

Q5: What level is Tesla’s P/E ratio at currently?

Tesla’s current share price implies a forward-looking P/E ratio of about 152 times over the next 12 months, the highest valuation among the “Magnificent Seven.” The forward P/E is about 167 times.

Q6: What is Tesla’s capital expenditure plan?

Q2 capital expenditures were $5.79B, up 142% year over year and doubled quarter over quarter. Full-year guidance is over $25 billion, and growth is expected to continue over the next 2–3 years. The company expects free cash flow to turn positive only in 2029.

Q7: How did retail investors trade during Tesla’s sell-off?

According to Vanda Research data, on July 23, Tesla became the most-bought stock by retail investors, with a net buy value of $42 million. Some analysts believe this pullback is a buying opportunity for long-term investors.